Tax & Accounting Blog

U.S. District Court Rules that under ERISA and U.S. v. Windsor, Same-Sex Surviving Spouse Receives Death Benefit from Qualified Plan

1042-S, 1099, Blog, Information Reporting for Wealth Management, ONESOURCE, Tax Information Reporting, TIN Compliance, Withholding Management August 21, 2013

5706On July 29, the United States District Court for the Eastern District of Pennsylvania issued an order that that a same-sex surviving spouse was entitled to receive the “surviving spouse” death benefit under an employer’s qualified employee benefit plan.

The court found that the United States Supreme Court’s decision in United States v. Windsor, declaring Section 3 of the Defense of Marriage Act unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment, requires recognition of a valid Canadian same-sex marriage for purposes of benefits distribution pursuant to ERISA, a federal statute.

Jean Tobits is the surviving spouse of Sarah Ellyn Farley, who was an employee of the Cozen O’Connor law firm and a participant in the firm’s profit sharing plan which included a death benefit in the form of a qualified pre-retirement survivor annuity. Ms. Tobits and Ms. Farley were married in Toronto, Canada in 2006, and Ms. Farley died in 2010. The qualified plan requires that, upon the death of a participant to the plan, the Plan Administrator must pay death benefits in the form of a qualified pre-retirement survivor annuity in accordance with ERISA and the Internal Revenue Code. There were two claims for the death benefit: from Ms. Tobits as surviving spouse and from Ms. Farley’s parents who would be the beneficiaries if there was no surviving spouse. The question for the court was: Who should receive payment of the death benefits? That question turned on a finding of whether Jean Tobits is Ms. Farley’s “Spouse” pursuant to the plan language.

In United States v. Windsor, decided in June 2013, the United States Supreme Court considered whether Edith Windsor, a New York resident who married her late-wife, Thea Spyer in 2006 in Canada, qualified for a federal estate tax exemption as a “surviving spouse,” in light of Section 3 of DOMA. The Windsor Court held that because the state of New York recognized same-sex marriages as valid, including New York’s recognition of the marriage in Canada of Ms. Windsor and Ms. Spyer, DOMA unlawfully deprived those couples of the equal liberty of persons that is protected by the Fifth Amendment. Prior to the Court’s decision in Windsor, under the plain language of ERISA, the Code, and the Cozen O’Connor plan, qualified retirement plans were under no obligation to provide benefits to same-sex spouses. Following the Supreme Court’s ruling, the term “spouse” is no longer unconstitutionally restricted to members of the opposite sex, but now rightfully includes those same-sex spouses in “otherwise valid marriages.”

Thus the U.S. District Court ruled there can be no doubt that Ms. Tobits is Ms. Farley’s “surviving spouse” under the employer plan in light of the Supreme Court’s decision in Windsor. Illinois was the couple’s place of domicile, and Illinois law would consider Ms. Tobits Ms. Farley’s “surviving spouse.” Where a state recognizes a party as a surviving spouse, the federal government “must do the same with respect to ERISA benefits – at least pursuant to the express language of the ERISA-qualified Plan at issue here.”

Cozen O’Connor, P.C., Plaintiff v. Jennifer J. Tobits, et al. Defendants, U.S. District Court, E.D. Pennsylvania; CIV. 11-0045, July 29, 2013.